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Estonia – Transfer Pricing (2025)

The Estonian domestic regime references the Arm’s Length Principle in Subsection 50 (4) of the Income Tax Act. The detailed administrative framework for transfer pricing is set out in the Transfer Pricing Regulation issued by the Ministry of Finance (in force since 1.01.2007), which prescribes procedures and documentation requirements for related-party transactions. The OECD Transfer Pricing Guidelines do not have direct legal force in Estonia, but, as explained below, they are used as interpretative guidance where the Regulation is silent.

Transfer pricing rules apply to transactions of resident legal persons, to non-resident persons operating in Estonia through a permanent establishment, and to transactions of sole proprietors with related persons. Commodities and intangibles are excluded from this deliverable per the instructions of the requester; therefore this profile does not address those topics.

Arm’s Length Principle and the role of the OECD Guidelines

Although the OECD Transfer Pricing Guidelines (TPG) are not legally binding in Estonia, they have been translated into Estonian and are recommended as guidance under Article 20 of the Transfer Pricing Regulation for situations not covered by the national regulation, provided that the TPG guidance does not contradict the Transfer Pricing Regulation. Accordingly, the TPG serve as the principal international reference for interpreting technical questions not explicitly regulated domestically.

The domestic definition of associated persons is contained in Article 8 of the Income Tax Act. Persons are deemed associated when they have a common commercial interest or when one person has a dominant influence over another. The statutory text includes an illustrative list of cases that are always deemed associated: spouses, civil partners and direct or in-law relatives; companies belonging to one group as defined in Article 6 of the Commercial Code; a legal person and a natural person who owns more than 10% of the share capital, total number of votes or rights to the profits of the legal person; a legal person and a person who, together with other associated persons, owns more than 50% of the share capital, total number of votes or rights to the profits of the legal person; legal persons if more than 50% of their share capital, total number of votes or rights to the profits belong to one and the same person or associated persons; persons who own more than 25% of the share capital, total number of votes or rights to the profits of one and the same legal person; legal persons whose management board members or bodies substituting the management board are the same persons; employer and employee relationships (including the employee’s spouse, civil partner or direct blood relative); and a legal person and a member of its management board or controlling body (including the spouse, civil partner or a direct blood relative of such member) (Article 8 of the Income Tax Act).

Methods and selection criteria

Article 11 of the Transfer Pricing Regulation lists the standard methods: Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus, Transactional Net Margin Method (TNMM), Profit Split and permits other methods where the listed methods are not appropriate, provided that the use of an alternative method is justified. The jurisdiction applies a “most appropriate method” approach rather than a rigid hierarchy: Subsection 11 (2) of the Transfer Pricing Regulation requires selection of the method that provides the most reliable result, considering the specifics of the transaction, the reliability of available comparable data, the justification of assumptions, and the degree of similarity with comparable transactions.

Comparability analysis and ranges

Estonia follows the comparability analysis guidance of Chapter III of the TPG, as reflected in Article 3 and Article 20 of the Transfer Pricing Regulation. There is a domestic preference for comparables: Subsection 3 (3) of the Transfer Pricing Regulation indicates that data on transactions between the taxpayer and a non-associated person is generally preferred over data between third parties and non-associated persons, and Estonian database information is preferred over foreign database information.

Secret comparables are not used for assessment purposes; Subsection 18 (4) of the Transfer Pricing Regulation requires that comparable data necessary to determine the market value of the transfer price be available to both tax authorities and the taxpayer. Estonia permits the use of arm’s length ranges and statistical measures: Subsections 11 (8) and 2 (6) of the Transfer Pricing Regulation provide that a transfer price is considered conformant if it falls within the price range determined on the basis of comparison data, with the price range defined as the interquartile series of results determined using the same or different methods and comparable data. If the resulting range is very wide, the analysis must be repeated with more specific data or different methods. Comparability adjustments are required in accordance with Subsection 3 (4) of the Transfer Pricing Regulation and are to be applied following the principles of the TPG.

Documentation and reporting

Estonia requires transfer pricing documentation consistent with the OECD’s three-tier approach: a Master file consistent with Annex I to Chapter V of the TPG, a Local file consistent with Annex II to Chapter V of the TPG (or an equivalent taxpayer’s file), and a Country-by-Country (CbC) report consistent with Annex III to Chapter V of the TPG (Article 18 of the Transfer Pricing Regulation; Article 203 of the Tax Information Exchange Act).

Article 18 establishes the scope of taxpayers subject to additional documentation requirements. Subsection 18 (1) of the Transfer Pricing Regulation specifies that the additional documentation obligations apply to: resident credit institutions, insurance undertakings and business associations registered in a securities market; transactions where one party is situated in a non-cooperative jurisdiction for tax purposes; resident business associations that have 250 or more employees including associated persons, or that together with associated persons had a turnover of EUR 50 million or more in the preceding financial year, or a consolidated balance sheet total of EUR 43 million or more; and non-resident entities active in Estonia via a permanent establishment with the same thresholds (250 employees or, together with associated persons, turnover of EUR 50 million or more or consolidated balance sheet total of EUR 43 million or more).

Procedural timing: the tax authority must give the company at least sixty days to submit transfer pricing documentation (Subsection 50 (7) of the Income Tax Act; Subsection 18 (9) of the Transfer Pricing Regulation). The authority may request translation of documents into Estonian when they have been prepared in a foreign language, assigning a reasonable timeframe for submission of the translation. The CbC report must be submitted to the tax authority by 31 December of the calendar year following the reporting fiscal year (Subsection 205 (1) of the Tax Information Exchange Act).

There are no transfer-pricing-specific penalties; general tax penalties apply. The law prescribes sanctions for concealment of tax liability or for unjustified increases in claims for refund: Articles 1531 and 154 of the Taxation Act and Subsection 44 (8) of the Penal Code are the relevant provisions. Intentional failure to submit information or submission of false information that reduces tax liability or increases a refund claim may be punishable by a fine of up to EUR 32 000 (Article 1531 of the Taxation Act). Obstruction of tax authority activities (failure to submit returns or required documents, failure to register, failure to keep records or to comply with tax authority orders) may lead to fines up to EUR 3 200 (Article 154 of the Taxation Act). Intentional submission of incorrect information in a tax return may also trigger criminal proceedings under Article 44 of the Penal Code.

Safe harbours / exemptions / materiality

Estonia does not have broad safe-harbour rules for industries or transaction types. The only simplification noted in the Transfer Pricing Regulation is the simplified approach for low value-adding intra-group services, consistent with Section D of Chapter VII of the TPG (Article 6 of the Transfer Pricing Regulation). No other simplification measures are provided in the profile.

APAs and MAP; procedures and timing

There are currently no provisions enabling taxpayers to negotiate Advance Pricing Agreements (APAs) with Estonian tax authorities; disputes are usually resolved between taxpayers and the tax administration and, if unresolved, may be brought before the administrative courts. For cross-border disputes, Estonia uses Mutual Agreement Procedures (MAP). The administrative provisions relevant to dispute resolution include Article 87 of the Administrative Procedure Act and Article 19 of the Transfer Pricing Regulation. The profile indicates that taxpayers should consult Estonia’s MAP Profile for more detail on international dispute resolution.

Penalties and other considerations

Estonia allows year-end adjustments in transfer pricing matters (Article 20 of the Transfer Pricing Regulation). Secondary adjustments are applied where appropriate, in line with Articles 19-20 of the Transfer Pricing Regulation and following the guidance of the TPG.

Regarding profit attribution to permanent establishments (PEs), Estonia follows the Authorised OECD Approach (AOA) where applicable. Out of 62 tax treaties in force, 3 contain the updated version of Article 7. Where older treaties do not include the new Article 7, Estonia would interpret the double tax convention dynamically and apply the AOA as set out in the OECD PE Report 2010, unless the taxpayer requests otherwise. The domestic legal framework also incorporates the principle that a taxpayer should not be in a less favourable position due to a tax treaty than under domestic law (Subsection 6 (5) of the Income Tax Act).

Other rules relevant to financial transactions include specific comparability characteristics and documentation requirements for financial transactions in the Transfer Pricing Regulation (Subsection 3 (8) and Article 18 of the Transfer Pricing Regulation). Due to the Estonian corporate tax system (taxation of profits upon distribution), there is no general limit on interest deductibility; instead, residual borrowing costs may be taxed as non-business costs subject to exceptions. Loans to employees with interest rates below market conditions may be treated as fringe benefits and taxed accordingly unless the interest at payment is at least twice the rate last published pursuant to Subsection 94 (2) of the Law of Obligations Act. Under certain circumstances, loans to a parent company or a subsidiary of the same parent may be regarded as disguised profit distribution, triggering 20% corporate income tax, and the granting, repayment and interest received on such loans must be declared (Articles 502, 54 (3), 542; Clause 48 (4) 6) of the Income Tax Act, as referenced in the profile).

Cost Contribution Arrangements

Cost contribution arrangements are addressed under Article 17 of the Transfer Pricing Regulation and are evaluated according to the same criteria as in the TPG.

Conclusion

Estonia’s transfer pricing framework is grounded in a specific administrative regulation that codifies OECD-aligned methodologies while maintaining domestic particularities. The regime defines related parties in detail, prescribes standard transfer pricing methods and a “most appropriate method” selection criterion, requires Master/Local/CbC documentation for entities meeting specified thresholds, permits year-end and secondary adjustments, and offers international dispute resolution via MAPs though it currently lacks an APA programme. Financial transactions and low value-added intra-group services are subject to specific guidance under the Transfer Pricing Regulation.

References

Country profiles and further information published by the OECD are available at https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html

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La información presentada en este perfil se ha generado tomando como base datos y contenidos publicados por la OCDE. Si bien se busca reflejar fielmente la información disponible, no se garantiza su exactitud ni exhaustividad y se recomienda consultar las fuentes originales de la OCDE para fines oficiales o de investigación.